Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


There is nothing original about Facebook’s Project Libra

There is nothing original about Facebook’s Project Libra. I make this conclusion because I have been writing about crypto and the blockchain for a few years.

In that time, I have seen many cryptocurrencies and blockchain projects promising everything Libra claims to do. However, those proposals all lack the magic of the name Facebook.

For instance; like Libra, the Request Network (REQ) claims to offer anybody, anywhere the ability to request a payment through the Ethereum blockchain. To clarify, Request; like Libra, is an application programming interface (API). In detail, an API is a piece of software that offers fast conversion of digital currencies.

Interestingly, Request is a decentralized network built on Ethereum that will offer fast conversion. Meanwhile, I think Libra will be a blockchain layer built into Facebook, WhatsApp, and Instagram that will offer a wide variety of financial services.

Moreover, India’s Coinswitch offers an API that can quickly convert hundreds of cryptocurrencies and many fiat currencies. Interestingly, Coinswitch offers no cryptocurrency of its own. Instead, Coinswitch makes money by charging small fees for fast conversion.

Libra vs. Bancor

Finally, the Bancor Network (BNT) offers a “smart crypto wallet” and liquidity or buying power for Ethereum and EOS-based cryptocurrencies. Developers intend Libra to make cryptocurrency easy to use and spend, just like Libra.

Notably, they named the Bancor for Lord John Maynard Keynes’ proposed global currency. Keynes intended his bancor to empower a global central bank. As I noted last week, the entity they describe in the Libra White Paper looks a great deal like Keynes’ Bancor proposal.

In addition, Libra looks like many existing banking and financial services cryptocurrencies including BABB (BAX). Tellingly, BABB arrogantly bills itself as a “new world bank” and bank on a blockchain. BABB even uses the slogan “everyone is a bank.”

They intend BABB, like Libra, to be a gateway or API to the global banking system for the 1.7 billion unbanked around the world that have no access to a bank. The difference is that you will have to access BABB through a BABB app while presumably, they will build Libra into Facebook, Instagram, and WhatsApp.

What we Don’t Know About about Project Libra

Incredibly, we know very little about Project Libra, even though it is unoriginal. Important unknown aspects of Project Libra include:

We do not know who or what is really behind Project Libra

Press accounts claim Facebook is behind Libra, but the media provides no evidence to back that contention.

Notably other corporations including Visa (NYSE: V), MasterCard (NYSE: MA), and PayPal (NASDAQ: PYPL) seem to play as a big a role in Libra as Facebook. Since, those organizations have far more expertise and experience in payments and Fintech than Facebook I have to wonder if one of them is running the show.

Instead of leading, Facebook could be the first soldier to step out of the foxhole. Consequently, Facebook (NASDAQ: FB) will be the first to draw enemy fire.

Libra’s relationship to Central Banks, governments, and regulators is unknown

I cannot imagine Mark Zuckerberg building Libra without the approval of several major central banks, governments, and regulators.

Thus, I have to wonder if central banks; such as the Federal Reserve, People’s Bank of China, Reserve Bank of India, the European Central Bank, and the Bank of England, are building Libra. Plus, I cannot picture Zuckerberg going ahead with Libra if he thought major governments and financial regulators were in opposition.

The organization that will administer Libra, the Libra Association, looks like a central bank

To explain, a central bank issues currency, backs currency with a reserve, and regulates and administers the ecosystem that distributes the currency. Beyond that a central bank acts a a bank for other banks. I think the Libra Association looks like a Central Bank for global electronic payments systems like Visa and PayPal.

Here is how the whitepaper describes the Libra Association:

  • “It is built on a secure, scalable, and reliable blockchain.”
  • “It is backed by a reserve of assets designed to give it intrinsic value.”
  • “It is governed by the independent Libra Association tasked with evolving the ecosystem.”

Libra Could be a Global Central Bank

Importantly they base the Libra Association in Geneva, Switzerland, where many international bodies; including the World Health Organization (WHO), headquarter.

I have to wonder if Zuckerberg intends the Libra Association as a global central bank. Therefore, I have to wonder if the Libra Association is really a cartel of central banks that could grow into a global central bank.

Importantly, the world’s most iconic central bank; the Bank of England, began as a private financial institution; owned by shareholders in 1694. However, His Majesty’s Government did not get around to nationalizing the Bank of England until 1946. Strangely, the British monarch’s picture did not appear on British banknotes until 1960.

Thus, I have to wonder if Zuckerberg intends Libra to follow in the Bank of England’s footsteps. Perhaps, Zuckerberg hopes governments; or the United Nations, will one day take over the Libra Association.

Notably, they headquarter the Bank of International Settlements or BIS; a sort of trade association for central banks, in Basel, Switzerland. Consequently, I have to wonder if the BIS is behind Libra.

Facebook could give Libra a Lot of Power

Working through Facebook will give Libra a lot of power. Facebook operates the world’s largest media network.

In fact, Statista estimates Facebook’s four social media networks had 6.22 billion active users in April 2019. In detail, Facebook itself had 2.32 billion active users, WhatsApp had 1.6 billion active users, Facebook Messenger had 1.3 billion active users, and Instagram had one billion active users.

Thus, if a global central bank wants to reach most of the world’s population it will have to use Facebook. Therefore, Facebook could be the financial infrastructure of the future.  

Libra could add a lot of value to Facebook

Despite its lack of originality, Libra could add a lot of value to Facebook. For example, Libra could offer financial services to 1.7 billion unbanked people, or 31% of the world’s population.

In addition, there are many markets Libra could tap including the $689 billion international remittances market. To explain, remittances are funds people wire to individuals in other countries.

The World Bank estimates the value of remittances grew from $633 billion in 2017 to $689 billion in 2018. Importantly,  they most remittances electronically, and organizations like Ripple are proving cryptocurrency remittances are technologically workable.

Facebook can cash in on remittances with a Libra money transfer app or a Calibra wallet built into WhatsApp, Facebook, Instagram, and Facebook Messenger. To elaborate this app will work like a global PayPal; allowing fast cross-border transfers of electronic cash between individuals. Facebook could profit by charging a tiny fee on each payment.

Obviously, Project Libra will lend credence to charges that Facebook is a monopoly or a conspiracy against national sovereignty. However, I think the value Libra could add to Facebook is worth the risks. Unfortunately, it is still far too early to estimate Libra’s true value.